Does Your Small Business Have a Customer Loyalty Program?

A solid number—38 percent—of small businesses have discovered the customer-retention benefits of loyalty programs. What do they know that you don't?

Consumers aren't the only ones eyeing the perks that customer loyalty programs provide, according to research firm BIA/Kelsey.

More than a third of small businesses (38 percent) use customer loyalty programs as part of their marketing strategy to drum up repeat business, according to a recent study conducted by the company. Another 21 percent said that they were likely to adopt a customer loyalty program in the next 12 months.

Typically, loyalty programs involve a card that customers scan for discounts and that store owners used to track your purchases. The associated rewards and money-saving offers aim to keep customers coming back time and again. The old school variation involves a paper card and either a hole punch or a stamp to earn a free sandwich or car wash after a predetermined number of purchases, for example.

A slim majority (54 percent) of the small businesses that offer a customer loyalty program operate it in-house. Most use a "paper-based tracking method," which has its disadvantages according to the research group.

"Paper-based loyalty programs are widely used by small businesses such as restaurants, coffee shops and salons. These 'punch card' type programs can provide a free or discounted service after a certain number of purchases. These are easily lost by the consumer, and quite inflexible," stated BIA/Kelsey vice president Peter Krasilovsky.

Technology Updates Small Business Customer Loyalty Cards

Small businesses may soon retire their ink stamps and hole punches, however.

"They are likely to migrate to electronic based-systems, which have many advantages," added Krasilovsky. "They aren't easily misplaced, and they include the capability to track what has been purchased, make targeted offers based on personalized spending habits, and provide rewards that incent more spending and more frequent purchases," he said.

Expect financial and payment processing firms to start wooing small shop owners. "Credit card companies, banks and financial institutions are stepping up their efforts in this arena, as are new payment type companies, such as Square," stated Krasilovsky.

Small businesses are also banking on daily deals, coupons and other promotional incentives to boost the bottom line. Respondents said that they expect to these offers to generate 17.7 percent of their total business in the next 12 months. "These promotions may or may not be aligned with a loyalty program," noted BIA/Kelsey.

The research indicates that these programs are becoming an integral part of retail strategy for a growing number of small businesses, said Steve Marshall, director of research for BIA/Kelsey. "The data indicates solid interest and intentions in loyalty programs, which are becoming an increasingly important tool for customer retention," he said in company remarks.

"Going forward, we believe the proportion of business generated from both loyalty programs and promotions will rise significantly, as SMBs increasingly tailor their offerings to frequent customers and specific customer segments," he added.

Pedro Hernandez is a contributing editor at Small Business Computing. Follow him on Twitter@ecoINSITE.

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